Voluntary carbon markets are growing and, despite warnings that this growth may be checked by adverse market conditions, it accelerated in 2022 compared to 2021. In 2021, these markets reached a $2 billion valuation, and are expected to reach between $10b and $40b by 2030.

With this growing opportunity, it is no surprise that commodity traders are increasingly looking to move into the carbon space and set up carbon trading desks. As well as the opportunity to profit from trading carbon credits, organisations may be looking to establish a carbon desk to offset their own environmental exposure and hedge against future price moves in carbon offsetting. Or they may be looking to service the ever-growing market for carbon-neutral products by monitoring the greenhouse gas emissions of their core offering and offsetting these emissions.

A new asset class means new challenges

Whatever the motivation for purchasing or trading carbon credits, these assets are complex, with many different pricing components that may require OTC contracts. Credit pricing can be affected by which standards body has accredited the project that generated the credit, its vintage, the UN Sustainable Development Goals a project supports, and several other pricing factors.

The diversity of these credits also creates operational challenges. Some organisations collate credits from multiple projects to create a portfolio for clients, whereas others look to match the relevant credits to the appropriate buyer or use the most economical credits to offset emissions. This means that matching credits with specific quality attributes to the right contracts is essential. As with any commodity, position visibility and a straightforward way to check inventory levels by a given attribute are essential in ensuring that the organisation can supply credits of the correct quality and that inventory is allocated effectively.

Simplifying carbon credit complexity

It should come as no surprise to anybody with a Commodity Management System that the best way to reduce complexity and simplify these digital processes is by using the right technology – like NetZero OS from Gen10.

NetZero OS includes a powerful pricing engine that calculates a credit’s value based on the attributes you choose to record and the pricing formulae that your team determine. Any premiums or discounts for different attributes are automatically applied and MTM is instantaneous.

And operationally, the system includes powerful automation to reduce the time and manual effort that goes into managing contracts, as well as controls that ensure your processes are followed. During implementation, your team can configure the customisable workflows that come with NetZero OS so that the system maps your carbon purchasing and trading processes, including any approval stages and documents.

Where documents are needed, NetZero OS can automatically create them based on your templates and the information within your system, from invoices to complete contracts. Even OTC contracts can be created using a selection of template texts, meaning that your contracts can be pre-approved by Legal teams with no need to individually check the wording of each document.

When your carbon experts have set up your processes, document templates and pricing, NetZero OS allows your traders to begin trading carbon credits straightaway. They do not need the in-depth carbon expertise that is still difficult to access in these new markets, because their technology guides them through all the information that is needed for purchase and sale contracts, and takes care of pricing and documents for them. Even reporting is carried out automatically, with a digital audit trail logging every activity, and a range of risk management reports available.

Trading teams are able to get off the mark quicker, confident in the knowledge that their system is ensuring all key processes are followed and crucial information is included. They can get on with doing what they do best, whilst NetZero OS looks after everything else.

So how many experts does it take to set up a carbon desk? Fewer than you might expect.


Want to know more? Get in touch now.

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